Chocolate Giants Hope for Sweet Appeal Outcome

PITTSBURGH (CN) – Confectionary giants Hershey, Mars and Nestle repeatedly told the 3rd Circuit that there is “no evidence” to support claims that they fixed prices. The chocolate companies melted down the multidistrict class action last year and hope a three-judge panel that heard the retailers’ appeal Thursday will affirm. In dismissing the suit over the alleged $726 million chocolate cartel, U.S. District Judge Christopher Conner found last year that “nothing scandalous or improper has been discovered within our borders, and no evidence permits a reasonable inference of a price-fixing agreement.” Although the companies’ Canadian affiliates were charged in a price-fixing scheme to which Hershey Canada pleaded guilty, Conner said the purchasers failed to show “any tie” between the Canadian and American goings-on. In 2013, Cadbury Adams Canada Inc., Hershey Canada Inc., Nestle Canada Inc. and Mars Canada Inc. reached a $23.2 million settlement for the sale of their products from Feb. 1, 2001, to Dec. 31, 2008. German regulators also fined Kraft and Nestle that year $81.4 million for price-fixing. The multidistrict proceedings now on appeal to the 3rd Circuit involved 91 separate civil actions that began piling up in 2007. Cadbury was dismissed from the action in 2011. Judges D. Michael Fisher and Judge Jane Roth sat on the panel with Senior U.S. District Judge Gustav Diamond, from the lower court where the case sputtered last year. Aside from a joke by Diamond about the lack of chocolate “exhibits” to enjoy, the hour-long hearing ticked away with each party exhausting their arguments. Steve Shadowen, an attorney for the plaintiffs, began by emphasizing the possibility of a link between U.S. pricing and the previously settled Canadian conspiracy. Though Judge Haridman warned against the assumption that if “it happened there, it happened here,” Shadowen pointed to “structural evidence” that the same people ran the neighboring U.S. and Canadian markets, and that those people all had pricing authority. Even if they did not actually have authority, Shadowen said they must have had consenting knowledge about pricing increases. After confirming to Judge Diamond that the price increases were nationwide, Shadowen claimed that U.S. chocolate companies were led by example to realize that “life is better when we follow each other, and cooperate instead of compete.” Indeed U.S. Hershey failed to support a price increase in 2001, when U.S. Mars failed to follow with its own increase, thus persuading the companies to work together, the attorney for the plaintiffs said. It is the plaintiffs’ theory that, when U.S. companies saw price fixing work in Canada, they followed suit. “At a minimum,” the U.S. companies knew about Canadian price fixing, Shadowen said, pointing to evidence of a cocoa-trader rumor about the planned 2002 pricing increases at Canada Nestle. U.S. executives allegedly “encouraged Hershey” to increase prices, in hopes that Mars would follow. Counsel highlighted testimony about how Hershey President Richard Lenny in particular became “deeply involved” in Canadian trade-spending controls in 2002, knew of the Canadian conspiracy and must have imagined similar success using the same scheme in America. For the attorneys representing the chocolate companies, however, “not a shred of evidence” supports those claims. Hershey’s lawyer, William Cavanaugh, criticized the rumor claims and the expert “thought-experiment theory,” and repeatedly cited a summary judgment ruling from a baby-food price-fixing litigation settlement to support the “no evidence” argument. Mars counsel told the court that a pricing increase that occurred in spring 2008, instead of at the end of the year as normal, occurred only because of a changeover in company computer systems. Mars had an existing “fast-follow” policy in place because of anticipated line pricing that led their price increase decisions, the attorney said. Insisting that the rumor theory relates only to Hershey executives, the defendants said that all the alleged participants were “different people, from different organizations.” Judge Diamond questioned the degrees of separation, asking if approval was needed from U.S. executives in order for Canadian executives to increase prices. The defendants said approval was not needed, and in fact some U.S. defendants were totally unaware of the price increases in Canada, and vice versa, until the day an increase was put into effect. Nestle, the only company of the defendants who had individual executives charged in the Canadian conspiracy, said that there was not a “scintilla” of evidence that there was any operational authority relating the U.S. and Canadian companies. In fact, defendants argued, in over 150 depositions and 12 million documents no evidence existed of any links. Judge Diamond commended both sides on presenting themselves well, saying the case itself was complex and “interesting.”